Toledo Traction, Light & Power Co. v. Smith

• Decision Date: 16 May 1913
• Docket Number: 70.
• Citation: 205 F. 643
• Parties: TOLEDO TRACTION, LIGHT & POWER CO. v. SMITH et al.
• Court: U.S. District Court — Northern District of Ohio

205 F. 643

TOLEDO TRACTION, LIGHT & POWER CO. v. SMITH et al.

No. 70.

United States District Court, N.D. Ohio, Western Division.

May 16, 1913

Syllabus by the Court.

A foreign corporation, duly incorporated under the laws of the state of its residence for the sole purpose of acquiring owning, and holding the stock and securities of an Ohio corporation, may lawfully exercise in the state of Ohio all the incidents of such ownership, including giving assent to change of regulations, and voting stock at all stockholders' meetings, provided that the exercise of such incidents of ownership does not tend to foster monopoly or suppress competition.

Acting as a stockholder, or giving assent as a stockholder, to changes in regulations, by a foreign corporation owning stock in an Ohio corporation, is not 'doing business' or 'transacting business' in Ohio, within the meaning of either section 178 or section 5508 (3 Page & A. Gen. Code, p 98), General Code of Ohio. These statutes deal with transactions which are part of the regular business of the foreign corporation, and, under the rule of comity, do not affect occasional or incidental corporate acts.

It is the duty of a court, charged with the construction of the meaning of a statute, to give to it, if reasonably possible that interpretation which will avoid absurd or inconvenient results. Therefore, having in mind the possibilities and absurdities involved if section 8703 General Code of Ohio, is read literally in case of a corporation which has not, under section 8638, provided by its charter that each stockholder shall have an equal voice in its affairs, and considering the terms of sections 8636, 8640, 8642, 8643, 8644, 8665, 8701, 8704, General Code of Ohio, statutes in pari materia with section 8703, it is held that, in case of a corporation not being chartered under section 8638, the words 'two-thirds of the stockholders,' in the provision of section 8703 that 'regulations may be adopted or changed by the assent thereto, in writing, of two-thirds of the stockholders,' should be considered as if reading 'two-thirds of the stockholders in interest.'

The laws of Ohio do not permit the adoption of regulations authorizing the removal at stockholders' meetings of officers or employes chosen or appointed by the board of directors, nor to arbitrarily remove directors. Directors are entitled to hold their positions for the term for which they are elected, unless removed for cause upon notice and hearing.

Directors of a corporation in Ohio are elected to serve to the next annual election after the date of their election, if elected by the stockholders; and when elected at a regularly appointed annual meeting they are entitled to hold for one year, unless sooner removed for cause. In such cases their terms of office cannot be shortened by a change of regulations to go into immediate effect, in which the date of the annual meeting is moved.

It is not necessary, in all cases, for one interested in a corporation as bondholder, stockholder, creditor, or otherwise, and whose rights are affected by matters affecting the interests of the corporation, to join in an action to preserve his rights the corporation itself, or other parties in substantially the same interest as himself. If the court is able to do justice to the parties before it, without injury to others not made parties, the case may proceed.

The remedy at law, to exclude a concurrent remedy in equity, must be adequate, practical, and as efficient to the ends of justice and its prompt administration as that in equity. Held that, in the case at bar, the interests affected by the litigation being such as would suffer by the delays incident necessarily to processes of law, equitable jurisdiction obtains, although a controlling factor of determination is a question of law; the only remedy at law, that of quo warranto, not existing as a matter of abstract right, but resting for its employment in the discretion of public agencies not having a special interest in the vital issues involved in the controversy.

To permit the exercise of the right of voting majority holdings of stock in an Ohio public utilities company by a foreign corporation, whereby the latter secures the election of a board of directors in the former, is not equivalent to transferring to such foreign corporation the franchise, permit, or license to own, operate, manage, or control public utilities under section 614-73, General Code of Ohio, which forbids the granting or transferring to a foreign corporation of the franchise, permit, license, or right to own, operate, manage, or control such utilities.

King, Tracy, Chapman & Welles and Rathbun Fuller, all of Toledo, Ohio, and Frueauff & Robinson, of New York City, for plaintiff.

Smith & Baker, Wm. H. McLellan, Jr., Erwin R. Effler, and Maurice Allen, all of Toledo, Ohio, for defendants.

KILLITS District Judge.

The Toledo Traction, Light & Power Company, a Maine corporation, claiming to own more than four-fifths of the capital stock of the Toledo Railways & Light Company, an Ohio corporation, hereinafter called the 'Local Company,' and to own more than $11,000,000, being nearly the entire issue, of the bonded indebtedness of such corporation, sues in this court to restrain Barton Smith, Maurice Allen, Louis E. Beilstein, Heman S. Swift, William R. Hodge, Erwin R. Effler, Conrad Weil, Frank Hafer, Jay K. Secor, Charles F. Meilink, and William H. McLellan, Jr., residents of Ohio, from interfering with the management and possession of the franchises and properties of the Local Company, by certain persons named in the bill, who, plaintiff claims, are the 21 directors and the officers of such Local Company. A temporary restraining order was issued, returnable in two days, and the case has been heard on a large record on motion for a temporary injunction.

The Local Company controls and operates all the street railways of the city of Toledo, an electric light and power plant, a heating plant, artificial gas plant, interurban union station, and several independent suburban electric railways, either through its own charter powers directly, or through the several corporations which are subsidiary to it. Prior to April 14, 1913, the board of directors of the Local Company consisted of nine persons, and eight of the defendants were, without question, up to that date members of such board, and each still claims to have that capacity. Of course, a very large question in this case already appears to be that of title to the offices managing the corporation; but in the opinion of the court that issue, although important to the extent of controlling the decision of the case, is, however, but incidental to the court's jurisdiction in equity, which will be hereafter discussed.

It is logical to first consider the question of title. Plaintiff claims that, because of a change in the regulations of the Local Company, which will be treated at length later, a vacation of the offices of the old directors and officers was effected on the date last named, and an enlarged directorate, with altogether a new personnel, save one man, was then chosen and qualified. Four of the defendants claiming to be directors were regularly chosen at the annual election in January last, held according to the regulations. In one way it is claimed the attempted change in regulations affected these men, and that is that the third Monday of April was named as the day for the regular annual meeting, such change to go into effect in 1913. The result of this change, if legally made, acting in conjunction with an old provision of the regulations, readopted in the amendment, which authorized the removal of directors at any special meeting of stockholders called for the purpose by a majority vote, so far as the term of office of these four directors is affected, is to be immediately considered.

We are clear that the regulation for removal of directors, attempted to be acted upon at the meeting of stockholders April 14th, called for the purpose, is contrary to law, if it is to be considered as authorizing arbitrary removals. No such power inheres in the body of stockholders, unless it is conferred by statute. Thompson on Corporations, Sec. 1084; Cook on Corporations, Secs. 624, 711, and cases cited. Such power is not only not conferred by the statutes of Ohio, but section 8704, General Code, detailing what may be provided in the regulations, being silent on this point, by well-known rules of interpretation we must hold that the power is altogether wanting. This section reads:

'When no other provision is specially made in this title, a corporation by its regulations may provide--

'1. The time, place and manner of calling and conducting its meetings.

'2. The number of stockholders or members constituting a quorum.

'3. The time of the annual election for trustees or directors, and the manner of giving notice thereof.

'4. The duties and compensation of officers.

'5. The manner of election, or appointment, and the tenure of office, of all officers other than the trustees or directors. * * * '

The power to remove a director for cause, of course, inheres in every corporation as an incident of its being; but there does not appear in the minutes of the meetings of plaintiff's stockholders that anything but an arbitrary removal of any of the directors named as defendants was attempted. If the removal is for cause, the accused director is entitled to a hearing.

We come now to consider whether the change of regulations providing for an annual meeting in April, rather than January, the old month, to take effect in 1913, was efficacious to remove the four directors in question. We are of the opinion very clearly that, irrespective of whether the...